MATLAB European Call Flashcards by Igor Flegel

Q

Generate M samples from N(0,1)

A

X = randn(M,1)

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Q

Simulate M trajectories in one step

A

ST = S0exp((r-0.5sigma^2)T+sigmasqrt(T)*X)

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Q

Define payoff

A

payoff = max(ST-K,0)

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Q

Discount Factor

A

discountFactor = exp(-r*T)

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Q

MC price

A

price_MC = discountFactor*mean(payoff)

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Q

standard deviation of MC estimate

A

stdev_MC = discountFactor*std(payoff)/sqrt(M)

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